I had an enjoyable chat with Steve Austin on his ABC Brisbane radio Drive program this afternoon regarding the Productivity Commission’s Brisbane hearing for its inquiry into Horizontal Fiscal Equalisation (HFE), the methodology which is used to distribute the GST revenue pool across states and territories. You can hear my reflections on today’s hearing from around 1:42:40:
Steve Austin’s 612 ABC Brisbane Drive program, 5 February 2017
You may recall from Nick Behrens’ previous PC inquiry post that the two main options for HFE reform proposed by the Commission would imply a reduction of revenue for Queensland of at least $700 million and up to $1.6 billion p.a. based on current economic parameters (see chart below which I’ve reproduced from the post), so it is an important and topical issue.
I attended the inquiry earlier in the day, and heard presentations from Griffith University, CCIQ, QCU, QTU, QCOSS, Townsville City Council, LGAQ, and finally from the Queensland Government, which was ably represented by our Deputy Premier-Treasurer Jackie Trad and my old Commonwealth Treasury colleague Jim Murphy, now Queensland Under Treasurer. The Under Treasurer made a strong case for why the HFE system has mostly worked well, and argued the system shouldn’t be changed radically just because WA is now complaining. Indeed, as Mr Murphy seemed to be hinting, WA’s current fiscal mess is partly of its own making. As I discussed with Steve, WA spent too much of the surge in revenue it received during the mining boom, while it should have been saving for a rainy day. I should note Deputy Premier Trad had previously made one of the points which Mr Murphy expanded on in his remarks, when, as reported by the Brisbane Times, she noted:
While we believe the current system can be improved, we believe introducing a fundamental change to combat a potentially temporary situation faced by one state is not prudent.
Overall Trad and Murphy made a very effective team in arguing for the state’s interests, and I regret I didn’t give Trad more credit in my interview with Steve. However, the Queensland Government does deserve one black mark against it, for an hysterical media release earlier today which, among other egregious claims, stated the Productivity Commission “doesn’t understand Queensland.” This must have come as a surprise to Productivity Commission Deputy Chair Karen Chester, who attended today’s hearing. The Deputy Chair is a former Queenslander and was a UQ economics first class honours graduate in the mid-1980s, before going on to become one of the youngest ever Commonwealth Treasury SES officers. Let’s hope the government’s media releases improve markedly, because today’s effort was lamentable.
Queensland Economy Watch 
The biggest issue is the time lag as WA are being credited with royalty revenue from iron ore years after the revenue peaked and fell away. By contrast Qld is getting coal royalty windfalls at present but being assessed on when coal prices and royalties were in the doldrums. So what can be done? The Minerals Council proposal in their submission to the Productivity Commission is worth considering. They proposed a 25% discount to the mining revenue assessment in the GST distribution calculations but with a safety net where no state receives a net reduction on its 2017/18 receipts.
Michael, many thanks for your comment. I agree that’s an important issue but I feel it’s one that state governments should be able to manage. If they get a surge in resource royalty revenues, they should save some of the money for when the CGC’s formula penalises the state for the high revenue.
The Minerals Council proposal is interesting. I’ll have a look at it.